A much younger forest economist at the entrance to the Agroforestry Research Centre at the University of Missouri in 2009.
As a resource economist I have spent the best part of three decades of my professional life working either on applied economic research, Government policy or industry advocacy related to plantation development in Australia. From that experience, I thought it timely to impart some observations about the challenges and potential solutions to getting more wood production trees in the ground.
Over this time there have been a number of lessons, as well as individual success stories and new market drivers, that I believe provide a recipe as to how we can begin to formulate a new wave of sustainable investment in wood production trees on farms.
In shorthand I am calling this the triple-scoop path to planted wood investment. More on this in a minute.
Most of us working in the sector understand the economics of wood plantations, with high up-front costs and long-time periods until tree harvest returns. This has made it difficult for farmers to commit large tracts of land to a long-term crop such as wood plantations, when compared to the annual returns from farming activities such as cropping or grazing. Typically, rotations for wood plantations vary from around 25 to 35 years.
The challenges and lessons for future investment in wood production in Australia can also be learnt from historical policy and operational experience. This experience included large scale state intervention in the development of the early softwood plantations in Australia from the late 1960s to the 1980s.
In this model, governments wore the risks of initial investment and reduced one of the most significant cost factors – being the cost of land. State governments, with low interest loans from the Commonwealth, were able to generate economies of scale and sufficient returns by focusing solely on crown land including the clearing of naturally vegetated areas. This avoided the higher relative costs from using private agricultural land. The target rates of return were also lower than for a commercial operator, given broader regional development and ‘self-sufficiency’ goals by Government.
While this intervention did help to generate the high-quality softwood plantation resource of around one million hectares we have today, the drivers and conditions to emulate this model are no longer applicable.
Concerns over the environmental impacts of land clearing for plantation development, and the role of Governments in investing directly in new plantations, has changed substantially since the 1960s. Hence new solutions that require the participation of private landowners and farmers on cleared land need to be found.
Another major lesson is the rise and fall of Managed Investment Schemes (MIS) which were used as an investment instrument for over a decade from the 1990s to early 2000s. These schemes were able to utilise taxation treatment advantages and pooled capital to fund the planting of land for mostly short rotation pulpwood plantations. Problems with the schemes soon became apparent in terms of their sole focus on the tax advantages and block plantings to maximise economies of scale for only one primary product being wood fibre.
This in effect alienated many landowners and farmers from any complementary agricultural activities. The structure of the taxation arrangements also led to the collapse of many MIS companies in the wake of the Global Financial Crisis, given a focus on pooled capital and planting rules dictated by taxation provisions rather than the underling market fundamentals for each site.
While there have been a few small-scale MIS success stories, these examples have largely incorporated some of the principles of integrated farm management. This principle for sustainable investment is discussed further below.
Economists have also long recognised that part of the challenge of investing in wood plantations on private land is that many of the public benefits from tree planting are not fully captured in markets, such as environmental amenity, biodiversity, water quality and carbon sequestration. We all know this has changed in recent times for some public benefits, most notably with the global development of carbon markets.
The evolution of carbon markets now provides an opportunity to gain an additional income stream from wood production and address an important market failure. By their inherent nature, trees producing wood also sequester and store large amounts of carbon as they grow as well as through the service life of the harvested product. Access to carbon markets goes some way to improving the rate of return from wood plantations, through more regular early to mid-rotation carbon income.
In a carbon constrained world, farmers are also looking at opportunities to reduce or offset their emissions footprint as ‘carbon neutral’ agriculture. Planted forests can provide effective carbon sequestration and a means for reducing the impact of fossil fuel inputs for agriculture and other emissions such as methane from livestock production.
The growing consumer trend for low carbon food products provides a market driver for wood plantations to provide on-farm offsets for cropping and livestock outputs while at the same time as generating future timber income for the farmer. The combination of wood and carbon values does start to improve the rate of return for planted trees in the landscape, and address some of the challenges of a long-time period until tree harvest returns.
An example of a silvopastoral trials research site with pasture alleys, pine and cattle in North Queensland, 2022.
Finally, I would argue that the third critical ingredient for successful investment is the role of trees in delivering agricultural productivity and other land management benefits such as climate resilience in times of drought or flood, wind protection for crops, erosion control, shade and shelter for livestock with reduced climatic stress (either heat or cold) and improved calving rates.
A number of local champions and agroforestry networks have real farm examples demonstrating the agricultural benefits and other important values from planted trees such as amenity, recreation and biodiversity. The paradigm thinking for investment is the agricultural enterprise and what wood production trees can do to deliver whole farm benefits rather than simply focusing on how much land is needed to produce maximum plantation wood stocking.
Planting designs can vary depending on the objectives and conditions of each individual farm, such as windbreaks, woodlots, riparian buffers, silvopastoral systems (trees with livestock) and alley cropping to name a few. In 2009, I was lucky enough to undertake an international study tour of agroforestry practices and related R&D in North America and Europe with a Churchill Fellowship.
The tangible benefits of agroforestry were clearly evident from a global perspective, but also some of the challenges in terms of raising awareness of the holistic benefits to the wider farming community. Since that time there has been an ever-growing body of international R&D on the joint benefits of integrating agricultural production and other land management values with forestry.
Without this third principle of farm productivity, planted investment for wood production will likely fail to provide a long-term sustainable investment. By not taking into account the needs of the farmer and the broader role of trees in the farming enterprise, most investments will suffer the pitfalls of large opportunity costs.
A prime example would be a dominant focus on broad acre plantations rather than a mix of planted trees and farm production. In this scenario the farmer has limited alternative income and other land use options, with a lower long-term commitment and passion to replant in successive rotations.
Here is where I’d like to make an analogy with an ice-cream parlour which we can all enjoy and appreciate on a hot summer day. Depending on our appetite and flavours on offer, we usually grapple with an internal dilemma as to whether to go for the one, two or three scoop-cone. In those few seconds we are weighing up the relative costs and sizes (or benefits) from the extra scoops, where each extra scoop will usually cost marginally less than the previous scoops, making the double or triple always an attractive option.
In the case of a new path for investment in planted wood production trees, I would say we should always go for three flavours and the triple cone!
In essence, the early state intervention and MIS models for wood plantation investment were like focusing on single cone ice creams to satisfy a large appetite. There was only one objective being wood production (one flavour) and with a subsidised land cost or tax incentive there was an ability to spend lots of money to achieve that set goal. However, once those subsidies or incentives are removed, this is no longer feasible. It just doesn’t feel right to keep buying single cones at a higher relative cost to satisfy your overall craving when there may be better alternatives (like a double).
With the advent of carbon markets, a farmer or landowner can now invest in planting trees for both wood production and carbon sequestration outcomes. This is like buying a double cone with two flavours (outputs), generating a higher rate of return than producing either one or the other product on its own. In terms of the ice-cream parlour, you are getting a double scoop with two flavours at a cheaper price than if you had to buy a single cone of each flavour. By purchasing that double, we are going some way to maximising our enjoyment within our available budget.
However, if we are to take a truly long-term view to grow and sustain more wood production trees on farms, we need to look at a third scoop. By having a triple scoop, we are able to satisfy a larger appetite (i.e. demand) but with the added bonus of three delicious flavours and an even lower average cost per scoop.
This triple-scoop pathway to new investment makes more sense for a farmer and revolves around maximising the joint benefits from wood production, carbon mitigation and on-farm agricultural productivity. By focusing on the combined benefits from all three factors, farmers are likely to generate higher long-term benefits than focusing on any single goal. It also provides a diversified income base to withstand market volatility and build enterprise resilience with an ongoing connection with farming the land for food production.
The agroecological functions of trees on farms are also an obvious ally of the new thinking around ‘regenerative agriculture’, being the latest label for sustainable farming practices.
We should also recognise the ice-cream cone that holds the triple-scoop together and stops the whole treat from ending up on the floor. The cone can be thought of as the bedrock needed to deal with any issues of sovereign risk, such as providing a policy environment to ensure a future right to harvest from private investment in farm forestry.
Taking these lessons and historical perspectives on board, future policies for wood production investment need to focus on promoting these complementary outcomes. This emphasis on multiple outputs need not detract from the principle of comparative advantage, whereby the landowner should still assign activities to the most relevant parts of the farm that generate the highest returns. This can be achieved by mixing activities at a paddock or stand level (ie on the same unit of land) to larger zoned areas across the farm to generate holistic benefits and diversified income.
In addition to putting in place appropriate carbon methods and activities in relevant markets such as the Emissions Reduction Fund to effectively capture carbon credits, farm forestry needs to be brought into the mainstream rather than treated as a cottage industry. This would entail more effort into farm level education and awareness and applied R&D to better quantify and demonstrate the benefits of the triple-scoop pathway to planted trees on farms.
I would argue that many of the recommendations from my 2009 Churchill Fellowship remain just as relevant today, and even more so, given the challenges described above when focusing on only single output objectives. It is worth reflecting on some of these recommendations, which go some way to getting to that desired sweet spot for new tree investment:
- that researchers, land use planners and policy makers develop better cross-sector linkages between traditional ‘forestry’ and ‘agricultural’ research and policy departments. This requires acknowledgement of the multiple benefits from agroforestry and its role in broader land use planning and research programs such as bioenergy, climate resilience and carbon sequestration;
- consideration be given to the United States Department of Agriculture (USDA) National Agroforestry Centre (NAC) model, as a means of establishing a policy leadership role and implementation of strategic extension with resource professionals, given the significant scope for these activities;
- while the universal principles of tree-crop-livestock joint production are generally well known, more applied research is required for site specific and regional conditions, including identification of appropriate genetic and species combinations and the direct benefits to producers;
- greater investment in research and demonstration sites and extension activities into farm forestry in key regions, to promote the benefits to landholders of novel or improved management practices; and
- research and extension to focus on the economic as well as the environmental and carbon benefits to promote commercial uptake and adoption, including the involvement of existing practitioners to reach out to other landholders.
While these recommendations seem self-evident, the historical experience has been ad hoc and piecemeal over the past few decades when it comes to applied research into farm forestry and wider extension services by governments and research providers. However, on the positive side, there is an emerging trend with some forestry companies and researchers, and a number of pioneering forest growers and agroforestry networks, who are actively implementing and promoting the integrated benefits of a triple scoop approach to planted trees on farms.
Some of the concerns over the role of farm forestry in helping meet our national aspirations for greater wood production relate to issues of lack of scale, the dispersed nature of many small-scale plantings and the planting of species not generally suited for major processing and end-use markets.
I would argue that these challenges are precisely the reason we need to more actively grow and promote farm forestry with a triple scoop pathway. The challenge for us is to build greater awareness and uptake one paddock and one farm at a time, which would simply diminish any diseconomies over time. Experience from overseas does provide some examples of achieving economies of scale for the timber industry from many small landowners in Scandinavia and parts of the United States.
By not doing so, we may simply consign ourselves to the policy challenges of the past two decades where new plantation investment has stalled or gone backwards in some regions through conversion back to other land uses. This lack of investment and decline can be partly explained by a lack of focus on the triple-scoop pathway. And for the record, my favourite flavours for a triple scoop are chocolate (wood), mint (carbon) and hazelnut (farm productivity).
The views in this article are my own and should not be attributed to any company or organisational level affiliations.
Mick Stephens is the CEO of Timber Queensland and a non-Executive Director of Forestry Australia.
